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New business owners say it's a mistake to work for free

It's a situation many new business owners find themselves in — they're so anxious to find customers and clients that they work for little or no money. Or take on projects they don't like.

These owners hope to get referrals, build a portfolio or get photos and testimonials for their websites. Instead, they wind up with a lot of grief and regrets.

Elise Gelwicks recalls feeling desperate for clients when she started InternView early last year. Gelwicks, who helps companies create internship programs, hoped that working without pay would allow her to make connections and lead to paying clients.

"People who were interested wouldn't pay me, and I said, OK, I'll do it for free. I needed the experience," says Gelwicks, who is based in Chicago. But not only was there no pay, she wasn't doing the work she wanted — instead, she found herself helping companies recruit interns.

Many owners find that clients who get cut-rate or free work aren't grateful, and may in the end devalue their services or the finished product.

"Underpricing is probably the biggest mistake most companies make," says Laura Willett, a business consultant and lecturer at Bentley University in Waltham, Massachusetts. "The perception is that your product doesn't have any value."

Conversely, owners find prospective clients and customers take them more seriously when they set a price that's in line with what other companies charge.

Gelwicks spent six frustrating months trying to turn no- or low-fee work into a growing business and finally decided it was time to start charging what she knew she was worth.

"It was terrifying. I went through a period where I didn't have clients," she says. But she did find companies that needed the services she wanted to provide, and InternView is now growing.

Liz Mally found misery in doing work purely for the sake of building a portfolio.

"I was taking on pretty much any client I could get, regardless of budget or style, in hopes of gaining experience and getting my name out there," says Mally, owner of LPF, a floral design company in Detroit. That included corporate clients who wanted brightly dyed flowers in flashy arrangements, not the elegant, understated creations that are Mally's specialty.

"I absolutely dreaded every second of the design process. I also didn't want to share any photos of my work because it didn't fit my aesthetic, which is the primary way I market my business," Mally says.

She learned to ask a lot of questions up front when contacted by a prospect. "That helps me understand ahead of time if they'd be a good fit," she says.

Some owners get lessons in good business practices from the anxiety-driven mistakes they make early on. Kenny Klein, co-owner of the public relations firm JAKK Media, recalls clients who kept asking him for more work, but didn't pay anything extra. Part of the problem was their written agreement — it didn't provide for rate increases if more work was requested.

"Since I was afraid of losing their business, I complied," says Klein, whose company is based in New York. "This resulted in a tough relationship where their expectations continued to increase, and I was very poorly compensated for my time."

After being caught in this bind several times, Klein started requiring clients to sign specific agreements about how much work would be done, and how he'd be paid if more was needed.

When V. Michael Santoro started his digital marketing company, he used several methods including the barter system — trading his services for another owner's — to bring in his first clients. But he found that many saw little value in what he had to offer, even though his work made their companies more visible on the internet.

Santoro, co-founder of Tampa Bay, Florida-based Vaetas, realized he needed to say no to some prospects.

"We needed to communicate what our value was and back away if it wasn't accepted. That's the biggest lesson: Know your own value," he says.

The excitement of signing her first clients made it hard for Krysta Monet to see red flags, including the haggling that one client did before the contract was signed. The client also wanted to micromanage her work. Payments were not only late, but it took eight days for checks to clear.

"I was being taken advantage of and feeling extremely used, and I had nothing in the contact I had written up to protect myself from what was happening," says Monet, owner of Nine & North, a public relations firm in Orlando, Florida.

Monet's mother, also a small business owner, told her she needed to reset the tone of the relationship. "You need to control the situation now before it gets out of control," her mother told her.

So Monet got the client on the phone and set a limit on how much supervision she was willing to take, and said she would not work without being paid. At the end of the contract, the client left.

"I've learned a lot, and I'm very happy I got him at the beginning of my company, not later," Monet says. "He changed my business model significantly."

Want that first customer? Don’t undercharge

Some advice for new owners on how to avoid the misery of bad clients and low or no pay:

Underpricing yourself can create an abusive relationship. When V. Michael Santoro and his business partner started their digital marketing firm, they first provided their services to other businesses in exchange for testimonials. “What we discovered is many were just taking advantage of us. Many were chronic complainers who were always trying to get more services for no money,” says Santoro, co-founder of Vaetas, of Tampa Bay, Florida.

Owners who are too eager to get new clients can make bad choices. Donny Minchillo, co-owner of website developer Pineapple Development, says it’s important for a client to be a good fit for his business, in much the same way that his company needs to be a good fit for a client. “Setting proper expectations and being transparent from the start has helped us continually bring on clients that are better matches for us as time has gone on,” says Minchillo, whose company is based in St. Petersburg, Florida.

Don’t be afraid to say no. “It’s important to know your boundaries, and to be firm with your limits, or the client will walk all over you and you will end up in situations you don’t want to be in,” says Rachel Reisner, owner of Cats and Hamsters, a pet sitting service in Montreal. Reisner found that some clients expect to pay very little because some pet sitters, are working to pick up extra cash rather than running a full-time business, as she is.

Do market research to find out who your customers are — and go after them, says Laura Willett, a business consultant and lecturer at Bentley University in Waltham, Massachusetts.

Owners who are anxious or unsure about how to find clients should seek out advice, Willett says. She recommends Small Business Development Centers sponsored by the Small Business Administration at sba.gov/sbdc. Willett also suggests contacting SCORE, which links owners with veteran business people who give free counseling, at score.org.

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.